Econ101 Exam 1
firms
(In the circular flow model of the economy) the suppliers of goods and services.
what is the actual cost and also the opportunity cost of distributing the tickets this way?
-The cost of people blocking traffic in and around the department's office building. -The activities that cannot be done (such as earning money at work) when one is standing in line. -The cost of travel to the department's office
Macroeconomics can be used to understand
-how the national economy works -what causes economic booms and recessions . -national unemployment
Why are independent courts important for a well-functioning economy? Independence is necessary for courts:
-to make their decisions free of influence from people with powerful political connections. -to make their decisions free of influence from other parts of the government. -to make their decisions based on the law. -to make their decisions free of intimidation by criminal gangs.
Macroeconomics is concerned with
-unemployment rates -inflation rates -standard of living
Suppose an inverse demand curve has the following equation: P=2-0.01Q 1.) the inverse demand curve intersects the graph's vertical axis when P equals... 2.) the inverse demand curve intersects the graph's horizontal axis when Q equals... 3.) the demand curve's slope is...
1.) 2 2.) 200 3.) -0.01
Production possibilities frontier (PPF )
A curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.
economic efficiency
A market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.
What do economists mean by market equilibrium?
A market outcome where quantity supplied is equal to quantity demanded.
Many banks have been reluctant to install these barriers. Wouldn't banks have a strong incentive to install bandit barriers to deter robberies? Why, then, do so many banks not do so?
Banks have no economic incentive to install the barriers
According to the rationality assumption, people:
Do not intentionally make decisions that would leave them worse off.
What incentives does a market system provide to encourage self-interest?
Financial reward.
Economic decisions are made at every level in society. When we try to decide which production method to use among several alternatives, which of the following key economic questions are we trying to answer?
How do we produce the products?
What does increasing marginal opportunity costs mean?
Increasing the production of a good requires larger and larger decreases in the production of another good.
product market
Markets for goods -- such as computers -- and services -- such as medical treatment
Productive efficiency occurs when a good or service (such as the distribution of tickets) is produced at the lowest possible cost. Is this an efficient way to distribute the tickets? (Yes or No)
No
What are copyrights designed to accomplish?
Protect intellectual property rights
comparative advantage
The ability to produce a good or service at a lower opportunity cost than other producers.
If demand decreases and supply increases
The equilibrium price will decrease.
If demand and supply both increase
The equilibrium quantity will increase.
What are the implications of this idea for the shape of the production possibilities frontier?
The production possibilities frontier will be bowed outward.
What is the opportunity cost of spending more money to find a cure for heart disease?
The reduction in funding for research to cure other diseases.
Microeconomics
The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.
macroeconomics
The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
Is Buffet correct that it is the role of the federal government to make sure people who work will have enough income to live a "decent lifestyle"?
This is a normative economic question, so the answer is a matter of the norms or values of the person answering.
decrease in demand
When consumers decrease the quantity of a product they wish to buy at all prices, the entire demand curves shifts from D 1 to D 3.
increase in demand.
When consumers increase the quantity of a product they wish to buy at all prices, the entire demand curves shifts from D 1 to D 2.
example of law of supply
When the market price of pens increased, sellers started supplying more pens.
If you were a manager at McDonald's, how would you go about analyzing whether to switch to fresh, never-frozen beef patties? In your answer, consider whether your decision would have to be all or nothing- all fresh, never-frozen beef patties in all McDonald's hamburgers, and whether you would have to switch in all McDonald's locations around the world (they are in 119 countries), or just in certain countries
You would want to compare the marginal benefits and marginal costs of serving hamburgers made with fresh beef.
In what type of economy does the government decide how economic resources will be allocated?
a centrally planned economy
a change in quantity supplied is caused by
a change in market price and is shown by a movement along the supply curve.
productive efficiency means that
a good or service is produced at the lowest possible cost.
McDonald's distributes $1.00 off coupons. This will cause...
a movement along the demand curve for McDonald's Big Mac hamburgers.
A good for which demand increases as income rises is ________, and a good for which demand increases as income falls is ________.
a normal good; an inferior good
If a surplus exists in a market, we know that the actual price is
above the equilibrium price, and the quantity supplied is greater than the quantity demanded.
Ms. Boulware is the best lawyer and the best secretary in town. She has: (absolute or comparative advantage)
absolute advantage in both jobs
According to the theory of comparative advantage, specialization and free trade will benefit
all trading partners who specialize in goods where they have comparative advantage
critical to the success of the market system
allow individuals or firms to have exclusive use of their property
The grading system used by a teacher can affect the incentives of students to learn the course material by
altering the payoffs to achieving success on the various components of the course
property rights
are guaranteed by two amendments to the U.S. Constitution
If a shortage exists in a market, we know that the actual price is
below the equilibrium price, and the quantity demanded is greater than the quantity supplied.
Suppose that your local police department recovers 100 tickets to a big NASCAR race in a drug raid. It decides to distribute these to residents and announces that tickets will be given away at 10 A.M. Monday morning at City Hall. Suppose that your college decides to give away 1,000 tickets to the football game against your school's biggest rival. The athletic department elects to distribute the tickets by giving them away to the first 1,000 students who show up at the department's office at 10 a.m. the following Monday. The groups of people that are most likely to get the tickets will be those for whom the expected marginal _____ of going to the department's office on Monday morning are greater than the expected marginal _____.
benefits, costs
__________ goods and services are those bought by businesses to be used to increase efficiency or enhance production.
capital
the new production possibilities frontier will indicate that with the technological advance, more ____ can be produced
consumption goods
If teachers put too much weight in the grading scale on a certain part of the course, like readings outside the textbook, students might respond by ____ other parts of the course
de-emphasizing
State whether each of the following events will result in a movement along the demand curve for McDonald's Big Mac hamburgers or whether it will cause the curve to shift. The price of Burger King's Whopper hamburger declines. This will cause
demand for McDonald's Big Mac hamburgers to decrease
What role do private property rights play in the working of a market system?
encourage a significant number of people to be willing to risk funds by investing them in business AND encourage firms to spend money on research and development.
One of the first steps in deciding whether to complete your education is to:
evaluate the marginal cost and marginal benefit of that decision.
allocative efficiency means that
every good or service is produced up to the point where marginal benefit is equal to marginal cost.
Tesla increases employment at its Fremont Plant (product or factor market)
factor market
tangible products like cars and . televisions are referred to as
goods
If a country has a comparative advantage in the production of a good, then that country
has a lower opportunity cost in the production of that good
Is it possible for a country to have a comparative advantage in producing a good without also having an absolute advantage? A country without an absolute advantage in producing a good will...
have a comparative advantage if it has a lower opportunity cost of producing that good.
All else being equal, an increase in the price of Nike Air Jordan XXXI Fly Low shoes will cause an ________.
increase in quantity supplied
teachers often wish that students came to class prepared having read the upcoming material. a teacher could design the grading system to motivate students to come to class prepared by _______ the grade weight assigned to being prepared
increasing
Contracts, insurance, patents and accounting rules are
inventions that make a market work better
economics
is concerned with how people respond to incentives
The effect of higher income taxes on the total amount of consumer spending. (micro or macro)
macroeconomic
The reasons for the economies of East Asian countries growing faster than the economies of sub-Saharan African countries (micro or macro)
macroeconomic
Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when
marginal benefit equals marginal cost
Economists believe that an individual or firm should continue any activity until:
marginal benefit is equal to marginal cost.
factor markets
markets for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability
product markets
markets where goods such as computers or services such as medical treatment are offered
The effect of higher cigarette taxes on the quantity of cigarettes sold. (micro or macro)
microeconomic
the reasons for low rates of profit in the airline industry (micro or macro)
microeconomic
The United States economy is best classified as a:
mixed economy
invention
name given to the development of a new good
The resources provided by nature and used to produce goods and services are also known as:
natural resources
consumer and producer measures...
net benefit not total benefit
the federal government should spend more on AIDS research (positive or normative)
normative analysis
the price of coffee at Starbucks is too high (positive or normative
normative analysis
Which of the following countries has an economy where most of the resource allocation is determined by a central planning authority?
north korea
Is this an equitable way to distribute tickets? why or why not?
not an equitable way to distribute the tickets because some students who really want them may be unable to go and get them
When nations specialize in their comparative advantage and engage in trade
overall standards of living increase
Jim declined to take part in a health study on a free basis but changed his mind after being offered $1,000 to participate in the study. Jim's behavior best illustrates which economic principle?
people respond to economic incentives
The stock of computers, factory buildings and machine tools used to produce goods is known as:
physical capital
A 50-cent-per-pack tax on cigarettes will reduce smoking by teenagers by 12 percent. (normative or positive analysis)
positive analysis
rising paper prices will increase textbook prices (positive or normative)
positive analysis
If minimum wage rates rise, then unemployment will rise. (positive or negative)
positive economic statement
George buys a Tesla Model S. (product or factor market) .
product market
import
product produced in a foreign country and purchased by residents of the home country
economics is the study of choice under conditions of
scarcity
a change in supply results from
sellers attempting to sell more at each and every price. This is caused by a change in a variable other than market price.
if a technological advance occurs that affects the production of consumption goods but not capital goods, then the production possibilities frontier will...
shift outward along the consumption goods axis
The role of the entrepreneur always involves
taking risks
absolute advantage
the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources
Tax incidence
the actual division of the burden of a tax.
Percentage change in real GDP from 2017 to 2018 is 2.93%. This percentage change in real GDP is also known as...
the economic growth rate
centrally planned economy
the government decide how most economic resources will be allocated
opportunity cost
the highest valued alternative that must be given up to engage in an activity
principle of increasing marginal opportunity cost
the more resources devoted to any activity, the smaller the payoff to devoting additional resources to that activity
scarcity
the principle of opportunity cost evolves from the concept of
The law of demand is the assertion that
the quantity demanded of a product is inversely related to its price.
Private property rights
the rights individuals and firms have to the exclusive use of tangible, physical property and intellectual property.
An increase in the price of a product causes a decrease in quantity demanded because of the income and substitution effects. More specifically,
the substitution effect is the decrease in quantity demanded because the product is more expensive relative to other goods and the income effect is the decrease in quantity demanded owing to the decline in consumers' purchasing power.
How should policymakers determine the amount of money that should be allocated for research curing heart disease? They should base their decision on
whether the last dollar devoted to research on heart disease results in more benefit than the last dollar spent on research for curing other diseases.
Even if you are better at unloading the dishwasher than your spouse, you shouldn't always be the one to unload it because
you may be even better at some other household task and must consider the opportunity cost.
A perfectly competitive market is a market that meets the conditions of
(1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market.
Would a decline in oil prices ever cause a reduction in the supply of oil?
No, a decline in oil prices would reduce the quantity of oil supplied, not the supply of oil.
Goods and services that can be used for the same purpose are ________, and goods and services that are used together are ________.
substitutes; complements